Types of Investment Accounts

A taxable brokerage account is the most flexible type of investment account. There is no limit on how much you can contribute, no rules about when you can withdraw, and no restriction on what you can hold. You can buy stocks, ETFs, mutual funds, and more, and sell whenever you want.

• Tax treatment: you are taxed as you go. Dividends are taxed the year you receive them, and you owe capital-gains tax when you sell an investment for a profit.
• Best for: goals before retirement age, money beyond what tax-advantaged accounts allow, and anyone who values being able to withdraw at any time.

For a fuller walkthrough of how these work and how to open one, see what a brokerage account is.

These accounts reward you for saving toward retirement with tax breaks, in exchange for annual contribution limits and rules that generally penalize early withdrawals. The main difference among them is when you get the tax break.

• Traditional IRA: contributions may be tax-deductible, the account grows tax-deferred, and withdrawals in retirement are taxed as income. It suits people who want a deduction now.
• Roth IRA: funded with after-tax money, so qualified withdrawals in retirement are tax-free. It often suits younger, lower, or middle earners who expect higher tax rates later. Direct contributions have income limits. See our Roth IRA explainer.
• 401(k) and 403(b): employer-sponsored plans with high annual limits and often an employer match. Contributions are usually pre-tax, though many plans now offer a Roth option. A 403(b) is the version common at schools and nonprofits.
• SEP IRA: a simplified plan for the self-employed and small-business owners, with contribution limits tied to business income that are far higher than a regular IRA.

For a broader look at how these fit together, read our guide to retirement accounts.

Two account types give tax advantages for specific goals rather than retirement in general. They are worth knowing because their tax treatment can be very favorable when used for their intended purpose.

• HSA (Health Savings Account): available if you have a qualifying high-deductible health plan. Contributions are deductible, growth is tax-free, and withdrawals for qualified medical costs are tax-free, a rare triple advantage. Many people invest an HSA and treat it as a stealth retirement account.
• 529 plan: a state-sponsored education savings account. Contributions are after-tax, but growth and withdrawals for qualified education expenses are tax-free. Some states also offer a deduction on contributions. It suits parents and family saving for a child's schooling.

A custodial account lets an adult open and manage investments on behalf of a minor. The adult is the custodian and controls the account until the child reaches the age of majority in their state, at which point the assets legally become the child's.

• Tax treatment: earnings are taxed to the child, with a portion taxed at the parent's rate under the so-called kiddie-tax rules. There is no federal contribution limit, though large gifts can trigger gift-tax reporting.
• Best for: investing flexibly on behalf of a child for any purpose, as opposed to a 529, which is education-specific.

For more detail on how these are set up and taxed, see our guide to custodial brokerage accounts.

The table below summarizes how the main account types differ on tax treatment, whether they cap what you can add, and who they tend to suit. Rules and limits change every year, so treat this as a map, not a rulebook.

Because tax-advantaged accounts have limits, a common general framework is to fill them in a rough order of value. This is a widely repeated rule of thumb, not personalized advice, and the right order for you depends on your income, taxes, and access to a workplace plan.

• 1. Capture any 401(k) match. If your employer matches contributions, that match is effectively an immediate return, so many people fund at least up to the match first.
• 2. Fund an IRA or Roth IRA. These add tax advantages and a wide choice of investments beyond a typical workplace plan menu.
• 3. Return to the 401(k). After an IRA, keep funding the 401(k) toward its higher annual limit.
• 4. Use a taxable brokerage account. Once tax-advantaged room is used, a taxable account holds anything more, with full flexibility.

An HSA, if you are eligible, is often slotted in near the top because of its triple tax advantage. Education savers may add a 529 alongside these steps. None of this replaces advice for your own situation.

Walnut does not open accounts or tell you which type to use. What it does is sit on top of the broker accounts you already have. You connect a real brokerage, and Walnut helps you see your holdings, build a thematic basket with target weights, and see how it would track against an index, then place trades you approve yourself at your own broker by chatting through Claude, ChatGPT, or built-in AI. The account wrapper and its tax rules stay with your broker; Walnut is the intelligence and tracking layer on top. It is not a registered investment adviser and does not give tax advice.